Virtual currencies and blockchain

Transcription

1 : challenges to regulation and to legal thinking on money CAMILA VILLARD DURAN ASSISTANT PROFESSOR OF LAW UNIVERSITY OF SÃO PAULO, BRAZIL OXFORD PRINCETON GLOBAL LEADERS FELLOW! Why this issue is important, notably for economists and lawyers?! Growing development of virtual currencies " Questions to the paradigm of national fiat currencies and the role of monetary authorities and banks in the economy " Challenges to our legal and economic concepts of money! Growing use of blockchain technology " Distributed ledgers challenges our conceptions of centralized system of payments and the need for clearinghouses " Outside virtual currencies: pose challenges to the model of banking business 1

2 ! What is a virtual currency?! Digital representation of value " Different currencies: simple IOUs, backed by assets or cryptocurrencies! Issuance by private developers! Denomination in their own unit of account " Different from: e-money!! What is a virtual currency?! Virtual currency scheme " Digital representation of value (currency) " Settlement mechanism of obligations! Decentralized systems " No central party to manage and issue currencies " The currency does not represent a liability on someone " Challenge to the standard concept of fiat currencies 2

3 ! Does a virtual currency fall in the legal concept of money?! As of now, no. But why? " Unit of account and medium of exchange are not denominated or used by reference to a national currency (lack of legal support) " It has no legal tender " The debtor cannot discharge obligations using a virtual currency! Value of a national currency! Ability of the state to support that currency " Power of the State: monetary policy framework and financial regulation " System based on the creditworthiness of the issuers (liabilities: central bank money and promises to pay money) " Lender of last resort (LOLR) functions " Liquidity crisis and lack of confidence: central bank as backstop! It is a centralized and hierarchical system 3

4 Key question: are virtual currencies money?! Hierarchy of money and credit in national monetary systems (Duran, Revista de Direito Bancário, 2015) Figura 1. Hierarquia da Moeda e do Crédito Agentes relevantes Moeda (meio de pagamento) Banco Central => Sistema bancário => Setor privado => Crédito (promessas de pagamento) Fonte: Mehrling, 2012, adaptado.! Value of a virtual currency! Social expectation that other parties would agree to use it " It is not a liability of public or private institutions! Economic functions of money " Used as medium of exchange? " Up to present: small size (US$ 7bn) " Used as unit of account? " Up to present: its value is represented as a reference to fiat currencies (exchange rate) " Used as store a of value? " Prices have been highly unstable 4

5 ! Value and credibility of a virtual currency (IMF, 2016)! What are the regulatory challenges?! Financial integrity " Concerns: money laundering and financing of terrorism " FATF: guidance " Focus on the connection: virtual currencies and national financial systems! Consumer protection " Related to virtual currency intermediaries and service providers; scams and irreversibility of transactions 5

6 ! What are the regulatory challenges?! Taxation " Tax evasion " Tax treatment: non-monetary property vs. foreign currency " Brazil: equivalent to financial asset! Exchange controls " Capacity of circumventing exchange and capital controls " Brazil: foreign-exchange contract! What are the regulatory challenges?! Financial Stability " Small scale and limited connections with the financial system " However: " Absence of LOLR functions " Comunicado BCB /2014 Individual risks related to virtual currencies Law nº : not applicable! Monetary policy " It could be a concern (IMF and BCE opinions) " What are the impacts for inflation-target regimes? " Virtual currencies: non-flexibility of supply and no LOLR 6

7 ! Conclusions! Growing development of virtual currencies " Questions to the paradigm of national fiat currencies and the role of monetary authorities and banks in the economy " Challenges to our legal and economic concepts of money! Time framework " Short and medium-term legal concerns: money laundering, consumer protection and taxation " However, more important: challenges related to financial stability and monetary policy ( money uber-ization? ) 7